ACCT 1026 Lesson 1 Vocabulary: Basic & Expanded Accounting Equation

Vocabulary flashcards covering the basic and expanded accounting equation, including assets, liabilities, equity, revenues, expenses, and related concepts from ACCT 1026 Lesson 1.

Assets

Future economic benefits controlled by an entity as a result of past events; what the business owns.

Liabilities

Obligations to transfer assets or provide services in the future; what the company owes to others.

Equity

Residual interest in assets after deducting liabilities; owners’ claims or invested capital retained in the business.

Basic Accounting Equation

Assets = Liabilities + Equity; the fundamental balance on the balance sheet.

Double-entry Accounting

A system where every transaction affects at least two accounts on both sides of the equation, keeping the equation in balance.

Balance Sheet

Financial statement showing assets, liabilities, and equity at a specific point in time.

Expanded Accounting Equation

Assets = Liabilities + Equity (Owner's Capital) + Revenues – Expenses – Owner's Drawings; shows how net income and owner transactions affect equity.

Revenue

Income from normal business operations; increases assets and is the top line of the income statement.

Expenses

Costs of operations to earn revenue; normally decreases assets; two categories: operating and non-operating.

Net Income

Revenue minus expenses; positive result increases equity (profit); negative result causes a loss.

Operating Revenue

Revenue earned from the primary activities of the business.

Non-operating Revenue

Revenue from secondary activities, not core to the business’s main operations.

Operating Expenses

Costs related to the core operations of the business (e.g., wages, rent, utilities).

Non-operating Expenses

Costs not tied to core business operations (e.g., interest expense).

Owner's Capital

Funds invested by the owner; part of equity representing contributed capital.

Owner's Drawings

Withdrawals of cash or other assets by the owner from the business; decreases equity.

Asset Exchange (Cash for Inventory)

An exchange where one asset increases and another asset decreases, keeping total assets unchanged.

Borrowing from a Bank

A transaction that increases both assets (cash) and liabilities (loan) by the same amount.